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Santa: I have heard recently that Mr. Rajan has reduced Repo Rate by 50 basis points and everyone is saying that this is good for the market. Loan EMI may also come down. What is this rate cut means actually? I want to understand this.

Banta: To understand this you first need to know, how does a bank function.

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The Australian dollar surged on Tuesday after the central bank held rates at a record low 2.25% and even as it signalled more cuts were possible.

“At today’s meeting the Board judged that it was appropriate to hold interest rates steady for the time being. Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target,” Governor Glenn Stevens said in a statement.

“The Board will continue to assess the case for such action at forthcoming meetings.”